DAILY MORNING NOTE | 23 November 2023

Trade of the Day

Sembcorp Industries Ltd (SGX: U96)

Analyst: Zane Aw

(Current Price: S$5.09) – TECHNICAL BUY
Buy stop: S$5.11 Stop loss: S$4.90 (-4.11%) Take profit: S$5.64 (+10.37%)

Summary of Trades Initiated in Past Week


Singapore shares closed higher on Wednesday (Nov 22), snapping a three-day losing streak amid mixed trading in regional markets. It rose 0.6 per cent or 18.58 points to close at 3,114.92. Shares of Singtel led the gainers, rising 1.8 per cent to close at S$2.29. The three local banks also ended the day higher, with shares of DBS, UOB and OCBC rising between 0.7 per cent and 0.9 per cent. Meanwhile, Frasers Logistics & Commercial Trust was the top decliner, after its units slipped 1.8 per cent to close at S$1.09.

Wall Street stock indices rose on Wednesday in a quiet pre-holiday session as Treasury yields retreated further, but petroleum-linked shares fell as major oil exporters pushed back a meeting. Stocks were buoyed by strong results from artificial intelligence player Nvidia. Markets were also encouraged by news of a four-day truce in the Gaza war, during which Hamas will free at least 50 hostages following the deadly Oct 7 attack on Israel. But most oil-linked stocks such as ExxonMobil and Halliburton were lower after a meeting of the Organization of the Petroleum Exporting Countries (Opec) and its allies was pushed back from Sunday to Nov 30, sending crude lower. The Dow Jones Industrial Average climbed 0.5 per cent to 35,273.03. The broad-based S&P 500 added 0.4 per cent at 4,556.62, while the tech-rich Nasdaq Composite Index won 0.5 per cent to 14,265.86.

Top gainers & losers





Singapore’s full-year economic growth is expected to come in at around 1 per cent, the Ministry of Trade and Industry (MTI) said on Wednesday (Nov 22) morning. The growth outlook hits the midpoint of the gross domestic product (GDP) forecast range that MTI had earlier expected. GDP is expected to grow 1 per cent to 3 per cent in 2024. In the third quarter of this year, the economy expanded by 1.1 per cent year on year, faster than the 0.5 per cent clocked in Q2. Sequentially, the economy grew 1.4 per cent in Q3, improving from the previous quarter’s 0.1 per cent quarter-on-quarter growth. MTI’s full-year projection takes into account the economy’s performance in the first three quarters of the year as well as external and domestic developments.

The net profit of semiconductor and machine manufacturer Frencken Group dipped 35.1 per cent in the third quarter (Q3) ended Sep 30 to S$7.1 million, from S$11 million in the same period last year. Its revenue declined 5.6 per cent year on year to S$184.4 million, with the gross profit margin falling to 12.4 per cent from 13.7 per cent in Q3 2022. The group has two main divisions – mechatronics and integrated manufacturing services. The semiconductor segment decreased 10.5 per cent to S$74.6 million; the increased sales in Europe from a key customer proved insufficient to make up for the lower sales registered in Asia as a result of an industry slowdown. The revenue for the medical segment rose 19.5 per cent on higher sales to a significant customer in Europe; the revenue for the analytics and life sciences segment grew 22.4 per cent to S$42.9 million, thanks to higher sales in both Europe and Asia.

Thai Beverage posted a 9 per cent drop in net profit to 27.4 billion baht (S$1.2 billion) for its full year ended Sep 30, from 30.1 billion baht in the previous corresponding period. In a bourse filing on Wednesday (Nov 22), the beverage manufacturer said that it faced cost pressures, and spent more on brand investment and marketing during the period. Earnings per share stood at 1.09 baht for the year, down from 1.20 baht the previous year. Revenue for FY2023 rose 3 per cent, backed by an overall improvement in economic activity in Thailand. A final dividend of 0.45 baht per share was declared for the full year, unchanged from the year before.


CHIP designer Nvidia forecast fiscal fourth-quarter revenue above Wall Street targets on Tuesday as supply-chain issues ease, but a cloudy outlook for China sales weighed on shares that have more than tripled in price this year. Nvidia, which outsources manufacturing to chipmakers like TSMC, has said it expects supply for its AI chips to improve each quarter, with the company making prepayments and placing noncancellable orders to ensure suppliers prioritise its chips. Demand for artificial-intelligence servers has grown rapidly, but the red-hot market for AI chips is playing out in the context of vastly expanded US export controls on what Nvidia can sell to China. While the company said on Tuesday that it expects those lost sales will be more than made up for by demand from other countries, shares slipped about 1 per cent in after-hours trading following the quarterly results.

OPENAI will bring back Sam Altman and overhaul its board to bring on new directors including Larry Summers, a stunning reversal in a drama that’s transfixed Silicon Valley and the global AI industry. Altman is returning as chief executive officer and the initial board will be chaired by Bret Taylor, a former co-CEO of Salesforce.com and director at Twitter before it was acquired by Elon Musk. Other directors include Summers, the former US Treasury Secretary under President Barack Obama, and existing member Adam D’Angelo, the co-founder and CEO of Quora. OpenAI is now working “to figure out the details,” the company said in a post on X, formerly Twitter. OpenAI decided to reinstate its co-founder after nearly all of its employees threatened to quit over his surprise ouster. The post triggered swift congratulations on X from key players in the saga including former president Greg Brockman – who said he too is returning to the fold – and CTO Mira Murati.

New York-listed TDCX reported a third-quarter net profit of S$31.6 million, up 2.3 per cent on the year from S$30.9 million previously, despite lower revenue. This brings its earnings per share to S$0.22 for the quarter, up from S$0.21 in the same period a year earlier. The digital customer solutions provider on Wednesday (Nov 22) attributed its bottom-line improvement to cost optimisation efforts, lower tax, and higher interest income. Revenue for the quarter ended Sep 30, 2023, fell 5.4 per cent year on year to S$163.5 million from S$172.8 million. This came as contributions from the content, trust and safety services segment fell 29.9 per cent to S$19.7 million for the period, due to lower volumes requirement by TDCX’s digital advertising and media client. Meanwhile, revenue from omnichannel CX solutions services was 2.8 per cent lower at S$98.1 million, amid lower volumes requirement by existing clients in digital advertising and media, and fintech.

The Opec+ meeting scheduled for this weekend has been delayed as talks ran into trouble amid Saudi dissatisfaction with other members’ oil production levels. Ministerial meetings will now take place on Nov 30, Opec said on its website, without giving a reason for the delay. Saudi Arabia, which has been making an additional 1 million barrel-a-day output cut since July, was in difficult talks with other members about their production levels, delegates said, asking not to be named because the discussions are private. Global benchmark Brent fell as much as 4.7 per cent, trading below US$80 a barrel.

Citigroup is in discussions to start a new direct-lending strategy by early January, the latest in a series of bank efforts to gain a foothold in the booming US$1.6 trillion private-credit market. The initiative would complement the bank’s existing broadly syndicated leveraged-finance business, said a person with knowledge of the matter. It could include teaming up with one or more outside partners that would provide capital for loans, which the bank would originate.

Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR


TDCX Inc. – Top clients remain a drag

Recommendation : BUY (Maintained); TP: US$8.60, Last Close: US$5.01

Analyst: Jonathan Woo

– 3Q23 revenue was in line with expectations. Earnings were better-than-expected, helped by lower employee expenses, lower taxes, and higher interest income. PATMI increased 2% YoY as a result. 9M23 revenue/PATMI were at 75%/91% of our FY23e forecasts.

– Revenue decline of 21% YoY from the top 2 clients was a drag, offset by strong growth from smaller clients across verticals like travel, gaming, FMCG, and e-commerce.

– We increased FY23e EBITDA by 11% to reflect lower costs, while reducing FY24e revenue/EBITDA by 4%/2%, respectively, on muted contribution from TDCX’s top clients. We also reduce our growth rate to 1% (prev. 3%) on limited growth visibility. We maintain BUY with a reduced DCF target price of US$8.60 (prev. US$10.40). TDCX continues to generate positive cash flows, with around 45% of its market capitalisation in cash (S$434mn).

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